by The act of drawee to withdrew the bill from circulation by making the payment of the bill before its maturity is called retiring a bill of exchange.
Sometimes the acceptor of a bill of exchange desires to meet the bill before its maturity if he has sufficient funds at his disposal. He may ask the holder of the bill to accept the payment before the due date. If the holder agrees to his proposal (obviously he welcomes it), he will withdraw the bill. Such a withdrawal is called “retirement of a bill of exchange”. The holder generally allows the acceptor a rebate or discount for the unexpired period of the bill. This rebate is discount is an expense for the holder and a revenue for the acceptor of the bill. The accounting treatment is similar to cash discount.
Rebate
It is concession or discount allowed by holder of the bill to the drawee for making payment of the bill before maturity. It is an expense for the holder and revenue for the drawee. Rebate is considered “Discount Allowed” from holder’s point of view and “Discount Received” from drawee’s point of view.
Journal Entries:
When a bill of exchange is retired by an acceptor, the following entry is made in books of the holder:
Cash A/C……………….Dr. (with actual amount of cash received)
Rebate A/C…………….Dr. (amount of rebate allowed)
Bill receivable A/C (full amount of bill)
In the books of acceptor, the following entry is passed:
Bill payable A/C………..Dr. (with full amount)
Cash A/C (amount actually paid)
Rebate A/C (rebate earned)
